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Unicaja 3Q18 results preview: Surprises not expected

 

3Q18e net profit: €47.4mn

Unicaja will publish its 3Q18 results on Monday, October 29th before market opens. A webcast will take place at 10.00 CET (). We expect that 3Q18e net profit may amount to €47.7mn (–5.8% yoy and +0.4% qoq), implying a 9M18e net profit of €151.7mn (+11.5% yoy).

Main business trends remain unchanged

We expect that the business and earnings trends witnessed in the prior quarters will remain unchanged although experiencing the seasonal weakness related to summer time. Therefore, we forecast net interest income to reach €148.4mn (+5.0% yoy and –0.6% qoq), fees of €55.1mn (–0.0% yoy and –0.6% qoq) and gross income of €246.2mn (–4.0% yoy and +1.8% qoq). Lending volumes may decline due to the payroll advances of the 2Q (estimated at €400mn). Customer yield spread is expected to narrow –1bp, to 1.75% from 1.76% in 2Q18, due the still negative impact of the floor clauses.

Costs and provisions, under control

We forecast that total costs may reach €153.9mn (–2.4% yoy and –0.6% qoq) and pre–provision profit €92.3mn (–6.4% yoy and +6.1% qoq). Asset quality may improve once again. We expect NPL ratio to fall to 7.1% (7.6% in 2Q18) with coverage unchanged and a Texas ratio of 64.0% (65.9% in 2Q18). Total cost of risk may increase to c. 30bp (annualised) vs. the provisions release of 1H18.

The new ERE: 15% of headcount?

The management is negotiating with unions a new headcount reduction plan that may affect to c. 1,000 employees although the bank has not yet confirmed this figure. We have included a €112.5mn provision in 4Q18e, which would be offset using the unrealised capital gains of the fixed income portfolio that totalled €198mn in June 2018 (€85mn in the AFS portfolio and €113mn pre–tax in the amortised cost portfolio).

The impact of the tax sentence

Although the final decision of the Supreme Court is still pending, the impact of 4 years retroactivity would be some €50-70mn pre–tax on our figures.

Target value Dec. 2019e: €1.61 per share

We have rolled forward our target value to Dec. 2019, increasing it to €1.61 per share from €1.44 per share. Our 2018e net profit is broadly aligned with consensus while 2019e and 2020e net profit are c. +4.5% higher. However, our target price is –1.9% below market consensus’ target price of €1.64, implying that our assumptions either on discount rates or perpetual growth rate are more conservative. Hold.